Alibaba Group Holding Limited, through its subsidiaries, provides online and mobile commerce businesses in the People’s Republic of China and internationally. It is a behemoth in the retail industry. I have Baba in my eToro portfolio.
As we get closer to its earnings report this Friday (22 May 2020) how is the company holding up? This post is not going to tell you to buy/sell/hold – that is only up to you. Also, it will be interesting to see how $WMT and $TGT report their earnings as they are also leaders in the retail space.
Market cap = US$546.6b
Key points
- Earnings are forecast to grow 11% per year
- Earnings grew by 148% over the past year
- Shareholders have been diluted in the past year
$BABA has a flawless balance sheet with a solid track record so it should pique your interest.
Shareholder returns, including dividends.
| BABA | Industry | Market | |
| 30 Day | -2.8% | 2.2% | 1.1% |
| 1 Year | 20.1% | 25.2% | 1.4% |
| 3 Year | 65.3% | 87.8% | 25.4% |
| 5 Year | 118.4% | 199.1% | 46.1% |
Baba Valuation
Is Alibaba Group Holding undervalued compared to its fair value and its price relative to the market?
So looking closely, it has a Price to Earnings (PE) ratio = 21.89x which is above the market average.
The calculation shows that $BABA is 26.9% Overvalued now with an estimate of fair value ($160.48). Fair value is an estimate of what the stock price is worth today, so its based on the cash flows the company is expected to generate in the future.
Price to Book Ratio – $BABA has a Price to book ratio of 5.1x compared to the industry (2.4x) and market (1.4x). the PB ratio compares a company’s market value to its book value (total assets – total liabilities)
Baba Future Growth
How is Alibaba Group Holding forecast to perform in the next 1 to 3 years? well its forecasted annual earnings growth is 11.0%, so that is a bonus.
- Earnings vs Savings Rate: BABA’s forecast earnings growth (11% per year) is above the savings rate (1.7%).
- Earnings vs Market: BABA’s earnings (11% per year) are forecast to grow slower than the US market (20.7% per year).
- High Growth Earnings: BABA’s earnings are forecast to grow, but not significantly.
- Revenue vs Market: BABA’s revenue (19.5% per year) is forecast to grow faster than the US market (8.8% per year).
- High Growth Revenue: BABA’s revenue (19.5% per year) is forecast to grow slower than 20% per year.
Past Performance
How has Alibaba Group Holding performed over the past 5 years? $BABA has a historical annual earnings growth of 26.4%
- Growing Profit Margin: BABA’s current net profit margins (35.2%) are higher than last year (20.1%). Profit margins are the percentage of its sales revenue a company has left over after deducting all expenses.
- Earnings Trend: BABA’s earnings have grown significantly by 26.4% per year over the past 5 years.
- Accelerating Growth: BABA’s earnings growth over the past year (148%) exceeds its 5-year average (26.4% per year).
- Earnings vs Industry: BABA earnings growth over the past year (148%) exceeded the Online Retail industry 0.6%.
Baba Financial Health
Where $BABA stands out from the other companies in the industry is its financial position.
- Short Term Liabilities: BABA’s short-term assets (CN¥459.4B) exceed its short-term liabilities (CN¥262.5B).
- Long Term Liabilities: BABA’s short-term assets (CN¥459.4B) exceed its long-term liabilities (CN¥197.7B).
- Debt Level: BABA’s debt to equity ratio (11.9%) is considered satisfactory.
- Reducing Debt: BABA’s debt to equity ratio has reduced from 46.2% to 11.9% over the past 5 years.
- Debt Coverage: BABA’s debt is well covered by operating cash flow (192.2%).
- Interest Coverage: BABA earns more interest than it pays, so coverage of interest payments is not a concern.
Dividend
$BABA does not pay a dividend. Which means it is focusing on putting its earnings back into the company.
Overall
$BABA is a juggernaut that is continuously adding other sectors to its repertoire. So, if you are interested in the retail sector, $BABA is one to add to your watch list.
Are you holding Baba? Let me know below and check out my other investing reviews.
The analysis above was created with information sourced from Motley Fool, Simply Wall St and TipRanks.